The Emerging Power of the Entrepreneurial Method

The entrepreneurial method, like the scientific method, will fundamentally change the world and is well on its way to doing so, says Darden Professor Saras Sarasvathy.

“In 1620, Francis Bacon published Novum Organum, a book that explained the scientific method as the best way to understand the universe,” she says. “With the entrepreneurial method, we are at a similar stage in history.”

Sarasvathy’s groundbreaking research, published in a 2001 paper, launched a new way of looking at the entrepreneurial method, once thought to be unteachable. Since then, dozens of articles and books have built on her work, and in turn have reshaped the landscape of how entrepreneurship is taught, researched and practiced. In 2013, the paper she co-authored with Darden Professor Sankaran Venkataraman was one of the Top 10 most-cited papers in Entrepreneurship Theory and Practice.

“The entrepreneurial method is not as mystical, magical or nonsensical as people make it out to be,” she says.

Her research examined the method used by 30 entrepreneurial CEOs to make business decisions. The research showed that the entrepreneurial method was used consistently by successful leaders. “My research showed that there’s this logic that is teachable,” she said. “And it’s powerful.”

She dubbed her finding “effectuation.” The term “refers to the logic — the decision-making principles — that entrepreneurs use in uncertain situations, such as starting a business, says Sarasvathy. “The alternative to effectual thinking is causal thinking, which describes decision-making that is based on predictive calculations, heuristics rooted in prediction.”

“We’re just beginning to understand that there are things you can learn systematically about entrepreneurship, but more importantly, that entrepreneurship itself is a method for us to build not just companies, but a better world,” Sarasvathy says. “It’s a method for us to unleash the human potential to create new ends and the means to attain them.”

She explains entrepreneurship in an unconventional way. “It’s not just coming up with an idea and starting a business. It’s much more than that. It’s really stitching together productive relationships between all these stakeholders and sustaining and sometimes reworking the interconnected structure until the business succeeds on its own.

And it’s even more than that.

“The entrepreneurial method can be used not only to achieve existing purposes but even to find and construct new purposes worth achieving,” she says. One classic example is the case of Muhammad Yunus, founder of Grameen Bank, who realized that he could afford to lend enough money — the princely sum of $27 — that would allow a whole village to rebuild its economy.

Later, as he expanded his loans to multiple villages, he bumped against, and overcame, the cardinal rule of banking — that loans without collateral should be unbankable. “That propelled the entire microfinancing revolution,” says Sarasvathy.

But Sarasvathy’s point is that entrepreneurship leads to surprises and that the entrepreneurial method — which includes its teachable way of thinking — can overcome hurdles, whether expected or not.

“Professor Yunus’ original purpose was not to empower illiterate women in Bangladesh by lending them money,” says Sarasvathy. “But he did — following a natural disaster — and they later returned the money and gave him gifts too. And he thought, ‘Why the heck not do this all the time?’ Now empowering poor women has become the intrinsic purpose of the venture he built.”

“I truly believe everyone should be taught the entrepreneurial method — whether you want to start a business or not, just as we teach science to every school student,” says Sarasvathy.

The world is now suffused with the benefits that have come from the use of the scientific method, and everyone reaps the benefit of that revolution in thinking, she says. Not everyone who learns science has to use the scientific method to better the world — just a critical mass of people, she adds. The same is true with the entrepreneurial method.

She believes that though the scientific method took several centuries to take hold, the entrepreneurial revolution will take much less time because of technology. “I think maybe 50 years. There’s already a movement in Denmark and South Africa to teach entrepreneurship in the first grade. People are pushing it earlier. The movement is definitely there.”

She says she fully expects that “in 50 years entrepreneurship will be taught in more basic ways. We have to come up with class exercises. We have to come up with mechanisms to teach the contents. We have to develop teaching materials.”

In the end, Sarasvathy believes the world will become a more “entrepreneurial society.” But that doesn’t mean there will necessarily be more businesses in the world. In fact there could be fewer. “We won’t necessarily see more ventures. But we will see people being more entrepreneurial. Being more entrepreneurial does not necessarily mean starting more companies; it means starting better ones that endure well and create more value,” she says.

That could mean thinking in different ways about how to offer talent or help. “It could mean peer-to-peer equity investing — not only money, but time and talent. People can pitch in for staffing needs,” she says.

Meanwhile, the fervor for studying the entrepreneurial method continues unabated. There is now an effectuation society in Japan. Turkey holds an annual effectuation week — though they didn’t invite Sarasvathy, because only Turkish was being spoken at the event. The third international conference on effectuation was held in Twente, in the Netherlands, in December 2014.

“We’re only 10 years into the movement and the interest is just phenomenal,” she says. “But when you think of effectuation as a toolkit for the entrepreneurial method, it makes sense.”

Carlos Santos is a freelance writer and co-author of Rot, Riot and Rebellion: Mr. Jefferson’s Struggle to Save the University that Changed America.

About the Faculty

Named one of the Top 18 Entrepreneurship Professors by Fortune Small Business magazine, Sarasvathy is a leading scholar on the cognitive basis for high-performance entrepreneurship. Her work pioneered the logic of effectuation — a set of teachable and learnable principles used by expert entrepreneurs to build enduring ventures.